Tennessee Tax on Specified Digital Products
- Oct 8, 2012 | Gail Cole
There is a sales and use tax on specified digital products transferred to or accessed by subscribers or consumers in Tennessee. Tennessee Department of Revenue Ruling #12-11 clarifies that this tax took effect for tax periods beginning on and after January 1, 2009. Prior to that date, some of these materials were not subject to sales and use tax in Tennessee.
Tennessee Code Ann. § 67-6-233 (b) (2012) states that the following are "subject to tax under this section:"
- Specified digital products sold with rights of permanent use and specified digital products sold with rights of less than permanent use;
- Specified digital products sold with rights of use conditioned upon continued payment by the subscriber or purchaser; and
- Subscriptions to, access to or the purchase of a digital code for receiving or accessing specified digital products.
Taxable Digital Products
The Tennessee Department of Revenue Sales and Use Tax Guide clarifies that taxable digital products include:
- Digital audio-visual works such as musical videos, motion pictures and new programs.
- Digital audio works such as prerecorded or live songs, readings of books, and ringtones.
- Digital books "generally recognized in the ordinary and usual sense as 'books,'" such as short stories, and works of nonfiction and fiction.
Non-Taxable Digital Products
Non-taxable digital products include, but are not limited to:
- video greeting cards sent by electronic mail,
- video or electronic games,
- audio greeting cards sent by electronic mail,
- digital newspapers and magazines.
However, Revenue Ruling #12-11 states "if taxable items are bundled with nontaxable items and sold for a single charge, the entire charge is subject to taxation." (Emphasis mine.)
The Tennessee Sales and Use Tax Guide specifies that taxable retail sales of specified digital products include:
- Obtaining the specified digital products by download or access online;
- Subscription fees for access to or downloads of specified digital products;
- Sales in which the seller limited the time a purchaser has access to or can download the specified digital products;
- Sales of digital codes that are to be used by the purchaser to download or access specified digital products.